Perhaps you dream of buying a vacation home in your favorite beach town. Or want to earn rental income with a condo in a popular ski resort. But, how do you know if your vacation rental will be successful or not? How can you be confident that you’ll earn enough to make your investment worth it?
Here’s the good news: There’s countless data out there to do your own vacation rental and Airbnb market analysis. With the right tools and research, you can gauge your revenue potential and estimate your risks ahead of time. No more guessing or crossing your fingers.
We turned to the experts—Vacasa’s Erik Barnes, director of data & revenue analysis and Paige Kercher, manager of revenue analysis—for a simple how-to guide for doing your own short term rental market analysis. Use these tips to help you determine if you’re making the right investment decision.
Vacasa Director of Data & Revenue Analysis
Vacasa Manager of Revenue Analysis
“It’s important you start with your motivations,” Paige says. Is this only for investment purposes? Or, do you want to take your own vacations there, plus earn rental income that can help with your mortgage?
Serious investors will want an adequate return on their investment, which requires understanding your costs and expected revenue, Paige explains. Maximizing your revenue is vital to maximizing your return, Erik added.
On the other hand, if you plan on using the home as your own vacation spot, you’ll want to see how much you could earn throughout the rest of the year that could go towards your mortgage.
Location matters. Whether it’s a destination within driving distance from your primary home or a dream getaway spot, where you invest will help determine your potential rental revenue. That’s one reason why a vacation rental market analysis is important.
Don’t simply rely on popular travel destinations, Erik suggests. “Sometimes the most popular destinations are already very saturated with vacation homes, which means competition will be high.”
According to Paige and Erik, here’s what you can do to narrow your location search:
First some explanations.
High season = When a destination gets the most visitors and highest occupancy rates.
Low season = When a destination gets the least amount of visitors and lowest occupancy rates.
What are the city’s low and high seasons and how long do they last? Don’t assume here. Although most people travel in the summer (when school is out), some destinations slow down during that time, such as mountain ski resorts. Or, sometimes places can enjoy multiple peak seasons. Whistler, BC, typically enjoys peaks in both winter and summer.
Paige also advises looking into events—major conferences, sports events, long weekends, cultural events, and holidays—or any other occasion that could drive visitors to the town. “Heightened demand during these key dates allows you to increase your rates,” she explains.
Each year, Vacasa ranks our top 25 markets to purchase a vacation home based on capitalization (cap) rate, or rate of return on your investment. The report ranking also factors key data points, including median home sale price and annual gross rental revenue, to help guide buyers to markets that have an attractive investment profile and are vacation rental friendly.
More helpful reports from Vacasa:
The 10 best places to buy a winter vacation home
From Maine to Maui, local legislatures (city, county, state, or all three) will have a say in how you own and operate a vacation rental. Some places require business licenses. Some collect higher property taxes. Others demand you collect a lodging tax per booking. Any of these regulations could impact your returns.
Homeowner associations can also limit what you can and can’t do on property, something you'll discover when analyzing a short term rental market. There are likely several rules and rental policies that you’ll have to abide by. Most importantly, some HOAs may even have bylaws against renting out your home as a vacation rental, while others allow it. So, it’s important to understand any rules and regulations that would impact your ability to earn rental income from your property.
Find out how large or healthy travel demand is by visiting travel bureau websites and other aggregators of travel statistics for that market, Erik suggests. Then, use sites like Zillow to get a good idea of what your ownership costs will be there.
Also, see if there’s an actual demand for short-term rentals. “The profit sweet spot is where demand far outpaces the number of vacation rentals available,” Erik says.
Already have a vacation property in mind? We can give you a free, personal rental income estimate based on our robust vacation rental market and industry data. Just plug in the property address and we’ll show you potential annual rental revenue and provide an overview of anticipated busy and slow months.
Paige and Erik share a simple step-by-step guide to determine your own estimated income from a vacation home.
Step 1: Look at similar, nearby vacation rentals to benchmark against. Seek out comparable properties on Airbnb, Vrbo, and Vacasa.com and be sure to check peak seasons and the lowest demand dates.
Step 2: Calculate your estimated income per season. Here’s how: Multiply the average rate you see for each season by the number of booked nights you’d expect in that season. For example, assume you’ll book:
Step 3: Add up the revenue from each season to get your annual revenue.
Step 4: Compare your potential annual revenue against the cost of vacation homes you’re researching.
Let’s look at a real-life example of this:
Say you’re considering a high-end, 3-bedroom vacation home in Park City, Utah. This area is very popular in winter, has a shoulder season in summer, and a low season in spring and fall.
Step 1: After you research comparable vacation rentals in the area, you find average rates of:
Step 2: Tally up your expected revenue per season.
Step 3: Add up the seasonal income for an annual total revenue of $57,720.
Not only do successful vacation rentals require careful analysis upfront, they also need continuous marketing, maintenance, and care once purchased. Even with an ideal location, your revenue will depend on your willingness to drive bookings to your property. Some things that can attract more guests to your vacation rental:
The more you know about your market before you purchase a vacation home, the likelier you’ll hit your financial goals. That’s because data from analyzing the Airbnb market can reveal your potential revenue and success. In this guide, our revenue team walks you step-by-step through conducting your own vacation rental analysis to help you make smart real estate decisions.
Call 844-518-0967 to speak with a Homeowner Consultant, who can answer preliminary questions and see if we’d be a good fit for you.
If you'd like to move forward, we’ll put you in touch with our market expert in your neighborhood to explore the financial potential of your home, outline our management fee, and introduce your local team.
Disclaimer: This publication is designed to provide general information regarding the subject matter covered. It is not intended to serve as legal, tax, or other financial advice related to individual situations. Because each individual's legal, tax, and financial situation is different, specific advice should be tailored to the particular circumstances. For this reason, you are advised to consult with your own attorney, CPA, and/or other advisor regarding your specific situation. The information provided here is for your use and convenience only. We have taken reasonable precautions in the preparation of this material and believe that the information presented in this material is accurate as of the date it was written. However, we will assume no responsibility for any errors or omissions. We specifically disclaim any liability resulting from the use or application of the information contained in this publication.
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